Australian Banks: Any Concern following SVB Collapse?

[Garpal Gumnut]

I am no expert on Australian banks.

In fact I know less than the average punter about them.

Given that the kerfuffle around SVB Financials has quite affected the share price of Canadian banks on Friday due their over-exposure to US Crypto Banks via increased buying of the latter over the last two years, I have two questions to ask.

1. Is it possible that the present contagion may spread to Australian banks next week or next month?

2. Which Australian banks are the better ones to buy should there be a big correction?

gg

ps sorry I posted this in another thread without realising it was a General Chat thread. So I've started a new thread.

 

[Dona Ferentes]

ps sorry I posted this in another thread without realising it was a General Chat thread. So I've started a new thread.

Good, maybe. Maybe the off-message mafia will move to this thread.

 

[Garpal Gumnut]

Good, maybe. Maybe the off-message mafia will move to this thread.

From what I've read the processes to contain the failure of banks in the US are more refined than during previous crashes.

I do wonder though how much Australian banks learnt from the Royal Commission and whether some of them may have exposures not fully declared in opaque reporting which may lead them to be affected by SBM.

Also if there is a general sell off in North American, UK and European banks, will there be a general rush by overseas institutions out of our banks to shore up their losses putting downward pressure on the share prices of banks here?

The only banks I have ever owned long term in my SMSF are MQG and SUN, the latter not being a true bank share and the former not a Big Four McBank, although I've traded the Big 4 during crashes.

We shall see on Monday and next week.

gg

 

[divs4ever]

now from what i have read ( in various alternative media ) SVB was put into administration by the FDIC ! ( the group insuring bank depositors funds ) , not the usual suspects

sooo... the question Australians need to ask is the Australian equivalent of the FDIC ( i forget what they call it now ) have the same powers ( to seize control of a stressed bank )

( remember only a small percentage of SVB depositors qualified for FDIC protection , unlike the average big 4 Aussie bank )

if Australian depositors worry if their funds can be frozen ( correctly or incorrectly ) then bank runs are likely , especially when modern banks do not keep enough cash on hand to redeem all the deposits in a short period of time ( if i need $3k or more in cash my branch likes to be given 3 days notice )

 

[farmerge]

From what I've read the processes to contain the failure of banks in the US are more refined than during previous crashes.

I do wonder though how much Australian banks learnt from the Royal Commission and whether some of them may have exposures not fully declared in opaque reporting which may lead them to be affected by SBM.

Also if there is a general sell off in North American, UK and European banks, will there be a general rush by overseas institutions out of our banks to shore up their losses putting downward pressure on the share prices of banks here?

The only banks I have ever owned long term in my SMSF are MQG and SUN, the latter not being a true bank share and the former not a Big Four McBank, although I've traded the Big 4 during crashes.

We shall see on Monday and next week.

gg

GG though our banks do have some sort of Govt guarantee on deposited funds, keeps the peasants happy, not sure about the rest of the so-called developed world.

 

[divs4ever]

GG though our banks do have some sort of Govt guarantee on deposited funds, keeps the peasants happy, not sure about the rest of the so-called developed world.

the US have a guarantee ( run by the FDIC )

however both Australian and US analysts speculate that both guarantee funds are not adequately funded to fully guarantee all eligible deposits in a timely manner

BTW both funds have several conditions that limit the maximum payout ( per depositor )

 

[farmerge]

the US have a guarantee ( run by the FDIC )

however both Australian and US analysts speculate that both guarantee funds are not adequately funded to fully guarantee all eligible deposits in a timely manner

BTW both funds have several conditions that limit the maximum payout ( per depositor )

So I surmise that if you had $100 in the bank and the payback was only 50% then as usual the peasants would suffer.

 

[divs4ever]

last i heard , ( and that could easily be out-of-date ) the first $250,000 per ADI ( very important you understand that ADI definition , Westpac and St. George have the same ADI as an example ) is guaranteed ( while they have money left )

now if say two of the big 4 ( and a second tier ) got into trouble in the same month things might get really interesting

 

[farmerge]

last i heard , ( and that could easily be out-of-date ) the first $250,000 per ADI ( very important you understand that ADI definition , Westpac and St. George have the same ADI as an example ) is guaranteed ( while they have money left )

now if say two of the big 4 ( and a second tier ) got into trouble in the same month things might get really interesting

Maybe a very sad case of ouch many times over.
Though i was under the impression it was a Govt backed scheme, related to the banking collapses in good ol' USofA some years ago.

 

[divs4ever]

Maybe a very sad case of ouch many times over.
Though i was under the impression it was a Govt backed scheme, related to the banking collapses in good ol' USofA some years ago.

Kevin Rudd formalized the Aussie scheme when he was PM , government-backed yes but NOT limitless

if large banks get stressed the government will have plenty of other problems as well ( like paying workers and pensioners , keeping businesses in business , etc etc )

 

[farmerge]

Kevin Rudd formalized the Aussie scheme when he was PM , government-backed yes but NOT limitless

if large banks get stressed the government will have plenty of other problems as well ( like paying workers and pensioners , keeping businesses in business , etc etc )

Delving into the depths of the grey matter a figure of $1 mil seems to crop up for that scheme back then. Now I think about $250,000 per account is covered.
Time to go. Great chatting

 

[Knobby22]

Australia has strong laws on banking after the recent crisis. What the banks are allowed to risk and invest in, how much is set aside etc. Remember they all had to do raisings to comply.

The USA set up more stringent laws also but they were greatly weakened by the previous Republican administration.

So I would say if you have $250,000 in any Aussie bank including the small ones, you are very safe.
USA banks, not so much.

 

[moXJO]

So I would say if you have $250,000 in any Aussie bank including the small ones, you are very safe.
USA banks, not so much.

Is it really covered if it came to the crunch?

 

[farmerge]

Australia has strong laws on banking after the recent crisis. What the banks are allowed to risk and invest in, how much is set aside etc. Remember they all had to do raisings to comply.

The USA set up more stringent laws also but they were greatly weakened by the previous Republican administration.

So I would say if you have $250,000 in any Aussie bank including the small ones, you are very safe.
USA banks, not so much.

Ahh Mr Knobby22 your info will keep the peasants from starting an uprising.

 

[Knobby22]

Ahh Mr Knobby22 your info will keep the peasants from starting an uprising.

No uprising here.

We don't call and treat our populace as peasants unlike the USA. Also unlike the USA we have a 5 year longer lifespan, much better wages, laws to protect workers, free healthcare, a true democracy, and finally a much better system for protecting our bank savings with a government guarantee.

 

[JohnDe]

The question now is whether there will be a bail-out and, if so, how big it would need to be to make depositors whole. svb “is the lifeblood of the tech ecosystem,” ... “They can’t let the bank fail. Whether that means that it should be acquired by another company…or get assistance from or even a statement from the Treasury department so that the depositors feel secure...”​

​

Intervention would be unpopular. But short of stiffing depositors it may be the only option, since svb clearly did not hold enough to cover the losses it was being forced to take on assets. Larry Summers, a former treasury secretary, has said that so long as the state steps in, there is no reason to worry that svb will harm other parts of the financial system...​

What does Silicon Valley Bank’s collapse mean for the financial system?​

Two ways. Gradually, then suddenly. That is how Silicon Valley Bank (svb), the 16th-largest lender in America, with about $200bn in assets, went bust. Its financial position deteriorated over several years. But just two days elapsed between the San Francisco-based bank’s announcement on March 8th that it was seeking to raise $2.5bn to plug a hole in its balance-sheet, and the declaration by the Federal Deposit Insurance Corporation, which regulates American bank deposits, that svb had failed.


SVB's share price plunged by 60% after the capital raise was revealed. Greg Becker, its chief executive, urged clients to “support us as we have supported you”. Unpersuaded, some venture capitalists told portfolio companies to run. Bill Ackman, a hedge-fund manager, suggested that the government should bail out the bank. By the morning of March 10th its shares had slid another 70% or so in pre-market trading, before a halt was called. cnbc, a television network, reported that svb’s capital-raising efforts had failed and that the bank was seeking to sell itself to a larger institution. Then came the announcement from the regulators.

These events raise two questions. The first is how svb got into this position. The second is whether its troubles are simply an anomaly, or a harbinger of doom for financial institutions writ large.

Start with the first. svb is a bank for startups. It opened accounts for them, often before larger lenders would bother. It also lent to them, which other banks are reluctant to do because few startups have assets for collateral. As Silicon Valley boomed over the past five years, so did SVB. Its clients were flush with cash. They needed to store money more than to borrow.

Thus svb’s deposits more than quadrupled—from $44bn at the end of 2017 to $189bn at the end of 2021—while its loan book grew only from $23bn to $66bn. Since banks make money on the spread between the interest rate they pay on deposits (often nothing) and the rate they are paid by borrowers, having a far larger deposit base than loan book is a problem. svb needed to acquire other interest-bearing assets. By the end of 2021, the bank had made $128bn of investments, mostly into mortgage bonds and Treasuries.

Then the world changed. Interest rates soared as inflation became entrenched. This killed off the bonanza in venture capital and caused bond prices to plummet, leaving svb uniquely exposed. Its deposits had swollen when interest rates were low and its clients were flush with cash. Since the bank made investments during this time, it purchased bonds at their peak price. As venture-capital fundraising dried up, svb’s clients ran down their deposits: they fell from $189bn at the end of 2021 to $173bn at the end of 2022. svb was forced to sell off its entire liquid bond portfolio at lower prices than it paid. The losses it took on these sales, some $1.8bn, left a hole it tried to plug with the capital raise. When it went under the bank held some $91bn of investments, valued at their cost at the end of last year.

Were svb’s troubles an anomaly? The bank appears to have been uniquely susceptible to a run. Federal insurance, put in place after a series of panics that felled the American economy in the 1930s, covers deposits up to $250,000. This protects all the cash that most individuals would stash in a bank account. But it is unlikely to cover the funds a company would keep. svb is a bank not just for companies, but a narrow subsection of them that have suffered tougher times than most. Some 93% of its deposits were uninsured. Its customers, unlike those at most banks, had a real incentive to run—and they responded to it.

That said, nearly all banks are sitting on unrealised losses in their bond portfolios. If svb is the bank most likely to have been put in the position of having to stock up on bonds at their peak price, it is probably not the only one struggling with the whiplash in prices. Janet Yellen, the treasury secretary, says she is monitoring several banks in light of the events in Silicon Valley. Thankfully, loan books make up a much larger share of assets at most other institutions. And with rates rising, they are earning more.

The question now is whether there will be a bail-out and, if so, how big it would need to be to make depositors whole. svb “is the lifeblood of the tech ecosystem,” notes Ro Khanna, a congressman from California’s 17th district, which includes some of the valley. “They can’t let the bank fail. Whether that means that it should be acquired by another company…or get assistance from or even a statement from the Treasury department so that the depositors feel secure—I will leave that to the experts.”

Intervention would be unpopular. But short of stiffing depositors it may be the only option, since svb clearly did not hold enough to cover the losses it was being forced to take on assets. Larry Summers, a former treasury secretary, has said that so long as the state steps in, there is no reason to worry that svb will harm other parts of the financial system. Lots of people will be hoping that it does, and that he is right.

 

[sptrawler]

List of authorised deposit-taking institutions covered under the Financial Claims Scheme | APRA

The authorised deposit-taking institutions (ADIs) listed at the bottom of this page are all covered under the Financial Claims Scheme (the FCS).

www.apra.gov.au

The authorised deposit-taking institutions (ADIs) listed at the bottom of this page are all covered under the Financial Claims Scheme (the FCS).

The FCS protects money held by an account-holder with an ADI, whether in one or more protected accounts, up to a total value of $250,000. Click here to find out more about which types of accounts are protected under the FCS.
This list below contains ADIs and their trading names and was last updated on 9 February 2023.

• Alex Bank Pty Limited
• AMP Bank Ltd
• Arab Bank Australia Limited
• Australia and New Zealand Banking Group Limited
• Australian Central Credit Union Ltd (trading as People's Choice Credit Union)
• Australian Military Bank Ltd
  • RSL Money
• Australian Mutual Bank Limited (trading as Endeavour Mutual Bank and Sydney Mutual Bank)
• Australian Settlements Limited (provides industry services)
• Australian Unity Bank Limited
• Auswide Bank Ltd
  • Queensland Professional Credit Union Ltd
• Avenue Bank Limited*
• B&E Ltd (trading as Bank of us)
• Bank Australia Limited
• Bank of China (Australia) Limited
• Bank of Queensland Limited
  • BOQ Specialist (BOQS)
  • ME Bank
• Bank of Sydney Ltd
• Bendigo and Adelaide Bank Limited
  • Adelaide Bank
  • Alliance Bank
  • AWA Alliance Bank
  • BDCU Alliance Bank
  • Bendigo Bank
  • Circle Alliance Bank
  • Community Sector Banking
  • Delphi Bank
  • Nova Alliance Bank
  • Rural Bank
  • Service One Alliance Bank
• Beyond Bank Australia
  • Nexus Mutual
• BNK Banking Corporation Limited (previously Goldfields Money Limited)
  • Goldfields Money
• Cairns Penny Savings & Loans Limited (provides general banking services)
• Central Murray Credit Union Limited
• Central West Credit Union Limited
• Challenger Bank Limited (previously MyLifeMyFinance Limited)
• Coastline Credit Union Limited
• Commonwealth Bank of Australia
  • Bankwest
• Community First Credit Union Limited
• Credit Union Australia Ltd (trading as Great Southern Bank)
• Credit Union SA Ltd
• Cuscal Limited (provides industry services)
• Defence Bank Limited
• Dnister Ukrainian Credit Co-operative Limited
• Family First Credit Union Limited
• Fire Service Credit Union Limited
• First Choice Credit Union Ltd
• First Option Bank Ltd
• Ford Co-operative Credit Society Limited (trading as Geelong Bank)
• G&C Mutual Bank Limited
• Gateway Bank Ltd
• Goulburn Murray Credit Union Co-operative Limited
• Greater Bank Limited
• Heritage Bank Limited
• Horizon Credit Union Ltd (trading as Horizon Bank)
• HSBC Bank Australia Limited
• Hume Bank Limited
• IMB Ltd (trading as IMB Bank)
  • The Shire
• Illawarra Credit Union Limited
• in1bank Ltd*
• Indue Ltd
• ING Bank (Australia) Limited (trading as ING)
• Judo Bank Pty Ltd
• Laboratories Credit Union Limited
• Lithuanian Co-operative Credit Society "Talka" Limited
• Lutheran Laypeople's League of Australia
• MacArthur Credit Union Ltd (trading as The MAC)
• Macquarie Bank Limited
• Macquarie Credit Union Limited
• Maitland Mutual Limited (trading as The Mutual Bank)
• Members Banking Group Limited (trading as RACQ Bank)
• MyState Bank Limited
• National Australia Bank Limited
  • Ubank
• Newcastle Permanent Building Society Limited
• Northern Inland Credit Union Limited
• Orange Credit Union Limited
• Police Bank Ltd (trading as Border Bank)
• Police Credit Union Limited
• Police Financial Services Limited (trading as BankVic)
• Police & Nurses Limited (trading as P&N Bank)
  • bcu
• Pulse Credit Union Limited
• QPCU Limited (trading as QBANK)
• Qudos Mutual Ltd (trading as Qudos Bank)
• Queensland Country Bank Limited
• Rabobank Australia Limited
• Railways Credit Union Limited (trading as MOVE)
• Regional Australia Bank Ltd
• South West Slopes Credit Union Ltd
• Southern Cross Credit Union Ltd
• South-West Credit Union Co-Operative Limited
• Summerland Financial Services Limited (trading as Summerland Credit Union)
• Suncorp-Metway Limited
• Teachers Mutual Bank Limited (trading as Firefighters Mutual Bank, Health Professionals Bank, Hiver Bank, Teachers Mutual Bank and UniBank)
• The Broken Hill Community Credit Union Ltd
• The Capricornian Ltd
• Traditional Credit Union Limited
• Transport Mutual Credit Union Limited
• Tyro Payments Limited
• Unity Bank Limited (trading as Reliance Bank, Bankstown City Unity Bank and Unity Bank)
• Victoria Teachers Limited (trading as Bank First)
• Warwick Credit Union Ltd
  • Dalby Credit Union
  • Gympie Credit Union
• WAW Credit Union Co-Operative Limited
  • BankWAW
• Westpac Banking Corporation
  • Bank of Melbourne
  • BankSA
  • St George Bank
• Woolworths Team Bank Limited

 

[againsthegrain]

Millions at a time: RBA reveals run on cash during panic

Extra cash had to be trucked to bank vaults after depositors rushed to withdraw large amounts - in some cases millions of dollars - as the stockmarket tanked last month because of fears about the coronavirus pandemic.

www.afr.com

we did ok once already

 

[farmerge]

No uprising here.

We don't call and treat our populace as peasants unlike the USA. Also unlike the USA we have a 5 year longer lifespan, much better wages, laws to protect workers, free healthcare, a true democracy, and finally a much better system for protecting our bank savings with a government guarantee.

Ah love it such a wonderful country to be residing in

 

[Garpal Gumnut]

I do sometimes mix with Mr and Mrs Shopping-Trolley and their children of varying ages, sexes, genders, disgusting habits such as travel to Bali and Thailand for sex and booze, tendency towards dishonesty and avarice, dependence on Centrelink, RSL Club gaming machines, television shows and political commentary telling them how and when to vote and laugh, ability to bother god in large numbers in the suburbs in a trance-like state while being conned by persons called Brian, who shout at referees and umpires in their chosen sport whether in the local oval or in stadia unfilled built for obscene amounts of money, who display enormous generosity and feeling for their fellow Australians and those overseas in tragedy or misfortune, who work hard and diligently, who serve for the common good and who deliver services and healthcare to the unwell and disadvantaged and who are covered by the $250,000 fallback on their monies in banks and financial institutions.

While this is gratifying I had hoped this thread would concentrate on the SHARE PRICE AND FUTURE OF AUSTRALIAN BANKS and not on the money opened by a politician turning a spigot to rescue these creatures and heroes from a life of penury.

It may not have penetrated that after the ASX closed on Friday one bank dealing in crypto, start-ups and media went A-up on the West Coast of the USA and subsequently all markets trading up to their close saw a fall in bank shares and other financial instruments.

So to summarise there is a Government guarantee on deposits, but where will the Banks' Share Price go tomorrow, next week and next month is the question I posited.

Should any poster mention the $250,000 again other than in relation to the share price or the nation's economy I will climb in through my screen with a baseball bat and soundly biff them about the head with it.

gg